A small dose of reality…
Recently, I have been experimenting with trading with very tight risk limits. I am doing a combine in both TopStepTrader and trying out for an account at OneUp Trader, as well (for more information about these firms see my article: Prop Funding at my other blog). While I just started the OneUp Trader, I am taking the exact same trades in my live account as I do in the simulators (except in a couple cases due to technical problems or errata). The fills are exactly the same on most trades. A few trades are slightly optimistic but to my best knowledge, I am still getting filled at virtually the same prices on the next retouch. Everything is the same except for one difference: in the live, I am trading only 1 lot. On the simulators, I am loading extra contracts on my best trades. Now, just to be clear I am not sure whether or not I have any edge with this trading style because I am trading with very tight stop losses of typically only a couple ticks. I do think my win rate is too low, to be honest. But, here is something I’ve observed: my TopStepTrader account is going mostly up while my live is only slightly up or break even over the same period. While I just started at OneUp Trader, I’m seeing a similar disconcerting pattern. I am able to run up the simulated accounts and while taking the exact same trades in live and getting the same fills: my live is not seeing the same performance. Because with only a single contract, I am not able to load my best trades.
If you are a discretionary trader do not attempt to trade futures with only 1 lot. Instead, trade a defined maximum of contracts but one that allows trading for bigger targets or size on best trades. Chaos within limits.
What is perhaps more illuminating is that even though my accounts go up faster when I trade more contracts, I am not seeing the inverse of the risk. Of course, there is additional risk: risk of making a mistake or loading extra size on the wrong trade. But, I think that is part of the reality of markets: most things that work take some form of asymmetric risk structure. As for systems or methods that work, they tend to either requiring using a bigger stop loss then target (tail risk), a smaller stop and larger target (risk of correlated losses, risk of lower volatility), or loading size on the best trades (risk of having bigger losses, risk of over optimization– while my discretionary is not optimized in traditional sense, I closed out 2 trades today to the tick that would have worked).
At this point, it makes little sense to continue with the triple jeopardy of possibly losing money in my live and on the try outs with a trading style that I can not be sure that works. As such, I am placing a pause to trading in the live account to focus on OneUpTrader opportunity and TST. It remains to be seen if I can make this trading style work.
Hypothetical/Simulated Performance. Not representative or typical. No claims.
The live results over same period. I do not think all the trade costs are being reflected though because the account over this period is virtually flat. While there may or may not be an edge, the lesson is clear that limiting oneself to a single contract makes it much more difficult to profit.
The author is passionate about markets. He has developed top ranked futures strategies. His core focus is (1) applying machine learning and developing systematic strategies, and (2) solving the toughest problems of discretionary trading by applying quantitative tools, machine learning, and performance discipline. You can contact the author at firstname.lastname@example.org.
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